Combining Low Mortgage Rates with Mortgage Insurance
August 23, 2016 / Troy Rampy, Regional Vice President-Central Region
Despite limited home inventory and climbing prices, this late summer/early fall season may be the best time of the year to purchase a home as mortgage rates continue to hover near historic lows.
Some prospective home buyers may have delayed a home purchase until now in the hope that rates could sink even lower. But waiting any longer to buy could be a mistake. Home prices rose 5.9 percent year-over-year in May, according to CoreLogic. If hopeful buyers continue to delay making a down payment, they could face being priced out of the market by rising home prices.
Not everyone can afford to make a 20 percent down payment. It's going to only grow more difficult as prices climb. That's where mortgage insurance (MI) offers flexibility and additional options. MI allows qualified buyers to take advantage of today's pricing and low mortgage rates to close the deal on a home faster and more easily.
The Opportunity Offered by Low Rates
Today's ultra-low mortgage rates mean that now is the perfect time for buyers to be pre-approved for a loan. According to Freddie Mac's Primary Mortgage Market Survey, interest for a 30-year fixed-rate mortgage averaged 3.42 percent for the week ending July 14—near a record for 2016. It's unlikely rates will dip much further. Buyers holding out for that possibility need to understand the opportunity right in front of them.
Say a buyer with a FICO score above 760 wants to purchase a $250,000 property with a down payment of 3.5 percent. Thanks to low MI rates, a buyer could get a conventional loan that costs $50 less per month than one insured by the Federal Housing Administration (FHA).
How? WalletHub reported that from 2014-2016, FHA mortgage insurance costs fell 29 percent. But the savings of private MI have been even more impressive—a 47 percent decrease for borrowers with credit scores of 760 or better. As FHA loans have grown significantly more expensive with the housing market's recovery, MI has once again proven a better choice for many home buyers who qualify for a conventional loan.
Nationwide, renters have struggled to save for the traditional 20 percent down payment that most lenders require for loans without mortgage insurance. As prices rose, some prospective buyers have been priced out of contention. With today's low mortgage rates, that can change.
Buyers who plan to stay in their new homes long term are particularly well suited for MI, with savings of up to 81 percent over time, according to WalletHub. FHA premiums, on the other hand, are assessed throughout the life of the loan when the purchaser makes a down payment of less than 10 percent. For down payments equal to or more than 10 percent, FHA premiums continue for 11 years.
Owning a Home Faster
Nationwide, thousands of renters would like to become homeowners but have struggled to save for the traditional 20 percent down payment while paying rent. Meanwhile, prices continue to rise, and prospective buyers in some markets have been priced out of contention. With today's low mortgage rates, that can change.
Pairing sub-4 percent loans with MI gives well-qualified buyers the chance to close deals on their dream homes now, not at some vague future date when rates may have reversed trend and tarnished their hopes for more affordability. When buyers understand how much they can save by combining generous rates with MI, they'll be eager to take advantage of the opportunity offered them.
Troy Rampy has been United Guaranty's Regional Vice President of Production in the central region for 20 years and is a six-time member of United Guaranty's President's Club. He has 37 years of experience in the mortgage industry. Rampy directs United Guaranty's efforts of a team of 16 sales professionals in Texas, Oklahoma, Colorado, Kansas, Missouri, Arkansas, Louisiana, Mississippi, New Mexico, and Southern Illinois. He is a member of the national Mortgage Bankers Association and the organization's chapters in Texas, Colorado, Oklahoma, Missouri, and Louisiana.
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